This time of year is when you take stock of your financial goals and how they have progressed over the last twelve months. I had a chance to interview Kevin R Chancellor of JAG Financial Services to learn more and get some good financial tips.
Why is it important for people to do yearly financial checkups?
Financial checkups are extremely important to maintaining the health of your financial plan as you are working toward your goals. It’s very similar to going to a doctor’s office for your finances. A good advisor will look at all of the data, make an assessment, and write prescriptions to improve or protect your financial health. It is an opportunity for the client and advisor to discuss how much progress the client has made toward their goals. It’s also an opportunity to make any adjustments if budgets change, laws change, family situation changes, or any other life event that may alter the plan. Also, a financial plan is a marathon not a sprint. An advisor is the GPS that searches for the best route possible, using all of the resources he or she has and guides you along the way until you reach your goal. Yes there will be slow downs, detours, and much more changes along your financial journey but annual checkups with your advisor regarding the financial plan will help you focus on what’s most important and that is the goals and are they on track to reach them.
What are some important things to consider financially at the end of the year?
Anyone who is required to take a Required Minimum Distribution from a tax deferred retirement account will need to have that RMD out of their accounts by Dec 31st of that year. For those individuals who are required to take an RMD we discuss charitable giving to reduce taxes, funding long term care goals, or to strengthen other areas of their plan. We also discuss harvesting losses on taxable accounts. Tax Loss Harvesting allows an individual to sell a position at a loss to receive a tax break and that person can use the proceeds to put in a better position that will potentially perform better. For many employers who are wishing to start a business retirement plan for their employees to help with taxes the deadline for many of those larger plans is Dec 31st.
How can people make sure they're on track for retirement?
There are many online resources available for those people who choose to do it themselves such as different types of retirement calculators and articles but the best way for people to stay on track is to have regular conversations about their retirement plan with their advisor and make any needed changes sooner rather than later. Clients can also think about the amount of money that goes into their checking account every pay period after taxes, benefits, and contributions to retirement plans. That net dollar amount is what a person is already used to budgeting and living on and will be an indicator if they are on track or not. However, if the numbers do not add up then a more aggressive approach to saving and budgeting may be recommended if Social Security and any other income sources do not fill the gap.
Why can it actually be a bad thing if people are saving too much, and what can they do responsibly with that money instead?
Excess savings, especially in the wrong account type or investment can pose potential issues for a person. Excess savings in certain account types can potentially create large future tax problems, expose a person to undue risk from creditors, or not be invested in the most efficient way to help a person reach their goals. There is more than likely a psychological reason why a person feels they have to save way more than needed or there is a lack of financial education provided to the person to help them allocate their dollars in the best way. Advisors can help in these situations but they can’t always cure some of the mistakes immediately without there being potential risks and consequences for the correction. Some cases take years to undo the problems created by over funding certain accounts or investments. However, excess savings can create opportunities as well. A responsible way to use excess dollars would be to perhaps fund long term care goals, fund legacy goals, fund educational goals for children and grandchildren, invest in real estate and other asset classes, charitable giving, and other common financial goals. Or simply, use some of those dollars to invest in improving your quality of life. Hobbies, travel, and other leisure activities can help you enjoy what you have worked so hard for. People who use their dollars more efficiently and in the right types of places can create a healthier portfolio that is not only protected from market risk but also is tax efficient, creditor protected, and protected from unforeseen risks, and in some cases be leveraged to create a larger legacy for your family or charity of choice.
Kevin R. Chancellor, CSSCS
Certified Social Security Claiming Strategist
Financial Advisor
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